The text of this paper, together with the abstract of the discussion held by the Institute of Actuaries on 22 September 1997, are printed in British Actuarial Journal, 4, II, 145-191.

This paper takes an overview of the various financial risks which need to be managed in banking. It then looks in detail at the specific areas of operational risk, market risk and pricing loans. A cash flow model is then developed, which takes explicit account of the various financial factors which should influence the interest rate charged. The model is applied to price loans with various features. The results of the model are shown, and weaknesses in the model and possible areas for further work indicated.

This paper considers the approaches currently used by life offices for statutory valuations, and proposes a number of changes to current practice. It builds on the earlier work of Philip Scott's Working Party and a working party which reported on all aspects of unitised with-profits business to the 1996 CILA conference.

Recommendations are made for each of the major categories of long-term business, in particular for the introduction of a bonus reserve standard for accumulating with-profits business, whilst retaining the net premium standard for conventional with-profits business. It is proposed that the current net premium approach for non-profit business should be replaced by a gross premium method. The paper also develops a greater codification of the calculation of non-unit reserves on linked business.

Considerable emphasis is placed on the requirement for statutory reserves to have regard to PRE. It is assumed throughout that the E.C. Third Life Directive remains in its current form.

A number of examples are provided which illustrate the proposed method for accumulating with-profits business. Appendices to the paper include a draft of suggested consequential changes to the Insurance Companies Regulations 1994, and a revised supporting version of the whole of GN8.

Using the stochastic investment model proposed by Wilkie (1995) this paper simulates the progress of a specimen final salary pension scheme over a period of 25 years. Salary experience over the projection period is also assumed to be stochastic. The specimen scheme is assumed to be stable during the projection period with respect to age, pensionable salary in real terms and past pensionable service.

Regular deterministic valuations of the scheme are conducted during the projection period to determine the current level of funding of the scheme on both a discontinuance and an ongoing basis, and also to determine the future contribution rate required to meet the funding objective. The required contribution rate is calculated in accordance with the Inland Revenue surplus regulations and the Minimum Funding Requirement (MFR) introduced in the Pensions Act 1995.

The effect on the level of funding (and, hence, on the size of the required contribution rate) of using different investment strategies and of varying the pace of funding, by adopting both a traditional prudent valuation basis and a more realistic valuation basis, are also explored.

This paper presents a statistical model underlying the chain-ladder technique. This is related to other statistical approaches to the chain-ladder technique which have been presented previously. The statistical model is cast in the form of a generalised linear model, and a quasi-likelihood approach is used. It is shown that this enables the method to process negative incremental claims. It is suggested that the chain-ladder technique represents a very narrow view of the possible range of models.